Kathy Spencer: Health sector review won't help Canterbury DHB

A recent stocktake found New Zealand will need to invest $14 billion over the next decade in district health board infrastructure. Photo / Richard Robinson, file

COMMENT

Canterbury DHB is currently having a meltdown, with several senior managers abandoning ship. The arguments centre on the DHB's deficit which has grown from $18m five years ago to $175m last year.

Financial sustainability – DHBs living within their budgets – was one of the Simpson Review's main aims. So, how would the structural changes that it proposed help sort out Canterbury's problem?

Reducing the number of DHBs from the current 20 to somewhere between 8 and 12 is one of the key recommendations from the review. However, since Canterbury DHB is already one of our largest, this change is unlikely to have any significant impact.

Another key proposal is to split the ministry (currently headed by the much-admired Ashley Bloomfield) into three organisations. It is hard to see how this would help Canterbury DHB either.

Arguments about funding – causes of deficits and possible remedies – would continue, but there would be different players.

If the proposed changes to the structure of the system wouldn't help, what would?

For Canterbury DHB, the costs associated with building new hospitals, and repairs following the earthquakes, have been particularly high.

Under the government's capital charge regime, when a new hospital is built for a DHB, the DHB has to pay 6 per cent of the cost to government each year as a return on the investment.

Paying a return of $30m a year on a $500m new hospital might be okay if the new hospital somehow generated annual savings of $30m, or if the DHB was able to charge patients for offering a modern facility instead of a crumbling one – like a private hospital would.

However, DHBs are funded by government based on their population size and characteristics, not on the newness of their facilities. There is a mismatch here which means that a DHB in Canterbury's position has to cut services to stay within budget.

A 2016 report by PwC found that the capital charge costs, along with depreciation, were the primary drivers behind Canterbury DHB's growing deficit.

It seems clear that the process we have been using to approve investments in new hospitals and other infrastructure, and the requirement for a 6 per cent return, have not served us well. The evidence is the rundown state of our public hospitals, with a recent stocktake finding that we will need to invest $14 billion over the next decade in DHB infrastructure.

Work is under way on a National Asset Management Plan "to deliver the best value from new and existing investments for generations of New Zealanders".

In developing this plan, the focus should be on building fit-for-purpose facilities at the lowest cost, not on generating a 6 per cent return. DHBs should not have to make unrealistic savings or cut services to have a hospital upgraded.

Along with financial sustainability, the Simpson Review aimed to produce more equitable health outcomes for Māori, Pacific peoples, disabled people, people experiencing poverty, and rural New Zealanders.

There is already a set of performance measures and targets for DHBs which currently include things such as shorter stays in emergency departments, faster cancer treatment, and higher levels of immunisation.

The review has recommended that the ministry develops a new set of long-term outcomes and related performance measures which can focus on the areas of disparity highlighted in its report.

The population-based funding formula already targets extra funding to DHBs based on ethnicity and socioeconomic deprivation: these weightings should be increased, as Simpson has recommended.

But there is also a proposal for a structural change – a new Maori Health Authority – to be split out from the Ministry. Is that needed?

Splitting bits out and rearranging other bits of our health and disability system has been done many times before:
• A Maori Health Commission was established in 1995 and then done away with in 1997
• Public health (the area that currently manages Covid-19) was split out from the ministry in 1993, only to be put back two years later
• New Zealand has at various times been split into 4, 14, 20 and 29 health regions
• hospitals have been split out then put back in
• The Ministry of Health has been restructured five times in a recent 10-year period.

The proposal to split the ministry into three organisations won't work because the functions are too closely related. For example, the overall funding of the system, the service delivery objectives, and the ability for DHBs to live within budget, are inextricably linked.

Giving these functions to different agencies just doesn't make sense.

Kathy Spencer. Photo / Supplied

Shuffling people from one organisation to another over a 5-year period is hugely costly and ultimately it won't help.

The solutions to our problems are within much easier reach: specify new measures and targets, invest in the necessary infrastructure, and fund the system appropriately to deliver the services New Zealanders need.

• Kathy Spencer was a deputy director general in the Ministry of Health, a general manager in ACC, and a manager in the Treasury. She has also worked as a senior advisor to a Minister of Health and a Minister of Revenue.